Warehouse logistics in Ukraine

There is a very shortage of Class A warehouses and specialized hubs in Ukraine. Pro-Consulting (one of the leading marketing companies) recently made calculations and fully agree with this argument. Therefore, warehouse logistics in our country is a promising direction. And investors who decide to invest in this area will quickly recoup their costs.

A little about the warehouse logistics market

During the research, Pro-Consulting specialists:

• analyzed the goals and defined the tasks of warehouse logistics;
• identified and described the capacity of this market, its development;
• calculated the shares of warehouses by category and their distribution by region;
• analyzed the structure of service consumers (those who use warehouse property);
• formulated a forecast for the development of this market segment for several years ahead;
• performed a comprehensive analysis of the factors influencing the development of the warehouse logistics organization market at present.

The topic was considered taking into account the main Ukrainian operators operating in this market segment. Attention was focused on the main advantages and services provided by each of them, the analysis of the financial condition, the logistics of the warehouses that they own. The matrix was worked out in terms of the main clients, including potential ones.

Top cities of Ukraine in the warehouse logistics market

In 2019, the warehouse logistics market (the area of ​​all warehouse premises in the country) did not exceed 3,000,000 (three million) sq.m. They were distributed very unevenly:

• Kyiv region — first place. Here is 23.4%;
• Cherkasy region — the second place with an indicator of 7.6%;
• Kharkiv region — the third place (7.0%).

Most of the premises are reconstructed objects of former industrial enterprises, erected in the USSR.

Market operators operating in this segment of services quickly respond to the growing effective demand from potential tenants. Therefore, they strive to expand the available space.

However, such efforts are not enough. A simple example. At the end of 2018, the demand for warehouse space fell to 2.8%. This is due to the overall growth of trade in the country by 14% (when compared with the indicator of 2017).

In the first half of 2019, the total volume of warehouse space (in warehouses of all groups) increased by 300,000 sq.m.

The main consumers of warehouse logistics services:

• companies that are direct manufacturers;
• retailers;
• distributors.

Retail remains the leader in demand in the market segment. It is approximately 63%.

The second place was shared by representatives of the pharmaceutical and medical industries, 3PL operators. These two groups lease almost 95% of the existing warehouses.

The analysis of the manufacturing sector indicates that enterprises engaged in the production of food products, tobacco products, various beverages, clothing, and textiles are in the lead here by a significant margin.

The maximum efficiency of warehouse logistics is observed in the five leading Ukrainian companies:

• EKOL Logistics;
• FM Logistic;
• Kuehne + Nagel;
• Raben Ukraine;
• ZAMMLER GROUP.

They operate modern warehouses of the AA, A, B, B+ classes. Most of them are located in the capital and the Kyiv region. In recent years, there has been a steady trend towards a steady increase in the total area of ​​warehouses in Dnipro and Lviv. It is due to the growing effective demand in these regions.

Lviv region has an additional bonus: geographic proximity to Poland. And this is one of the important business partners of Ukraine.

The prospects for the development of warehouse logistics are set by the consistently low vacancy of free warehouse space. The demand for warehouse logistics is growing. And this allows us to predict the actual loading of warehouses in the shortest possible time. Among potential customers, first, are distributors, manufacturers, retailers.

Under such conditions, the natural expected reaction of companies owning warehouse premises is a rent increase (the estimated upper limit for its increase may reach 20%). This significantly reduces the payback period for new warehouses that are currently being built. Especially related to A and B+ classes.

Promising directions of the warehouse logistics market in Ukraine

Warehouse complexes are classified as commercial real estate. Investing in the construction and modernization of new warehouses is considered by many potential investors as a venture operation. This is explained by the following messages: changes in the estimated profitability of an object depend on several difficulty predictable external factors.

These include general trends in economic recovery after the recession of the pandemic, changes in national legislation, and corruption risks.

In a recent interview, Yaroslav Gorbushko (CBRE Ukraine), Head of the Capital Markets Department, noted that the main indicators of interest to investors are profitability, determined by the ratio of net income (by year), which brings rent, and the number of investments, capitalization rate, net operating income.

Before the outbreak of the COVID-19 epidemic, in early 2020, the rate of return for Class A warehouses was about 13%.

For initial investments, according to Vladimir Mysak (Cushman&Wakefield), who heads the company’s capital market department, warehouses of classes A (any) and B+ are recommended in 2021. This direction promises interesting opportunities and has significant potential.

The average payback period for a Class A warehouse, given the right location, in Ukraine is 8–10 years.

By the end of 2020, the following trends have emerged in the warehouse logistics market. Taking into account the uncertainty of the prospects and timing of the recovery of the global economy, including the Ukrainian one, the expectations of potential investors in terms of the profitability of investments in commercial real estate, including innovations in warehouse logistics, are increasing.

Recommended priorities for investors

Today, priority growth is observed in the part of warehouses for structures developing fulfillment (online trade without attracting distributors). These are the fastest-growing logistics warehouses in Ukraine.

First, warehouses of group A are in demand here. In all of Ukraine, their total area in 2019 did not exceed 2,000,000 (two million) sq.m. And the theoretically necessary, at least, three times more.

In agricultural regions (Uzhgorod, Lviv), the demand for vegetable stores is growing rapidly.

In the Black Sea regions, it should be noted the steadily developing hub “Sukhoi Port” in Odessa and the work that is being carried out in Mykolaiv on the construction of a second similar facility.

Investment projects offered by Avenston Group

Large items of expenditure in the field of warehouse logistics are the cost of paying for consumed electricity. Its cost is constantly growing.

These costs can be reduced with the help of innovations in the field of warehouse logistics. For example, entrepreneurs can switch to renewable energy sources. At the same time, it is possible to increase the generation of solar power plants (rooftop and ground-based) by selling surplus electricity to the external grid both using a “green” tariff, and without it.

We specialize in:

• design and implementation of energy-efficient technologies based on the use of solar energy and other renewable energy sources;
• development of our energy projects.

Our developments allow us to equip warehouses of any type with our own autonomous solar power plants. We take into account the individual characteristics and climate of the region.

Avenston designs and builds modern solar energy solutions for logistics companies with their own warehouses, logistics centers, or different types of warehouse facilities. A solar power plant for a warehouse is a reliable investment that can significantly reduce the company’s electricity costs and increase its competitiveness. The return on investment in solar power plants allows not only to return the invested funds but also to multiply them several times over the entire period of operation of the facility.

We offer cooperation to all potential investors! They are allowed to connect to ongoing programs at any stage or to participate in the financing of a new project. We are ready to take part in their financing. And this is an additional guarantee for investors that only potentially profitable programs are offered to them.

We are ready to provide any information to interested parties. We are flexible in discussing the terms of cooperation.